IRS Lawyers

2025 IRS Standard Mileage Rates | IRS Tax Lawyer & Attorney

/in , /by

On December 19, 2024, the IRS updated the optional standard mileage for the calculation of deductible costs of operating an automobile (sedans, vans, pickups and panel trucks) for business, charitable, medical or moving purposes. Let’s discuss in more detail these new 2025 IRS Standard Mileage Rates.

2025 IRS Standard Mileage Rates for Business Usage

For the tax year 2025, the business-use cost of operating a vehicle will be 70 cents per mile. This is 3 cents higher than in 2024. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile.

As in previous years, a taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

2025 IRS Standard Mileage Rates for Medical and Moving Purposes

For the tax year 2025, the medical and moving cost of operating a vehicle will be 21 cents per mile. This is the same as in 2024. The rate for medical and moving purposes is based on the variable costs.

2025 IRS Standard Mileage Rates for Charitable Purposes

For the tax year 2025, the costs of operating a vehicle in the service of charitable organizations will be 14 cents per mile. This is also the same as in 2024. The statute sets charitable rate which remains unchanged.

2025 IRS Standard Mileage Rates vs. Actual Costs vs. Miscellaneous Itemized Deductions

It is important to note that under the Tax Cuts and Jobs Act, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. With the exception of active duty members of Armed Forces, taxpayers also cannot claim a deduction for moving expenses. Notice-2019-02.

However, taxpayers are not forced to use the standard mileage rates; rather, this is optional. Sherayzen Law Office advises taxpayers that they have the option of calculating the actual costs of using a vehicle rather than using the standard mileage rates. If the actual-cost method is chosen, then all of the actual expenses associated with the business use of a vehicle can be used: lease payments, maintenance and repairs, tires, gasoline (including all taxes), oil, insurance, et cetera.

IRS Notice 2025-05

IRS Notice 2025-05, posted on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. In addition, for employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2025 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).

First Quarter 2025 IRS Interest Rates on Overpayment & Underpayment of Tax

/in , /by

On November 18, 2024, the IRS announced that the First Quarter 2025 IRS interest rates on overpayment and underpayment of tax will decrease from the Fourth Quarter of 2024.

This means that the First Quarter 2025 IRS interest rates will be as follows:

seven (7) percent for overpayments (six (6) percent in the case of a corporation);

seven (7) percent for underpayments;

nine (9) percent for large corporate underpayments; and

five (5) percent for the portion of a corporate overpayment exceeding $10,000.

Internal Revenue Code (“IRC”) §6621 establishes the IRS interest rates on overpayments and underpayments of tax. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.

Under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Again, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. The readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

Importance of the First Quarter 2025 IRS Interest Rates

It is important to note that the First Quarter 2025 IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses.

First, these rates will determine the interest a taxpayer will get on any IRS refunds. This is also relevant in situations where a taxpayers files amended tax returns, including as part of their offshore volutnary disclosure package.

Second ,the rates will also be used to establish the interest to be added to any additional US tax liability on amended or audited tax returns. This also applies to the tax returns that were amended pursuant to Streamlined Domestic Offshore Procedures, Streamlined Foreign Offshore Procedures and any other offshore voluntary disclosure option.

Finally, the First Quarter 2025 IRS interest rates will be used to calculate PFIC interest on any relevant IRC §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.

We at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates, including the First Quarter 2025 IRS interest rates.

Fourth Quarter 2024 IRS Interest Rates on Overpayment & Underpayment of Tax

/in , /by

On August 21, 2024, the IRS announced that the Fourth Quarter 2024 IRS interest rates on overpayment and underpayment of tax will remain the same as in the Third Quarter of 2024.

This means that, the Fourth Quarter 2024 IRS interest rates will be as follows:

eight (8) percent for overpayments (seven (7) percent in the case of a corporation);

eight (8) percent for underpayments;

ten (10) percent for large corporate underpayments; and

five and a half (5.5) of a percent for the portion of a corporate overpayment exceeding $10,000.

How Are the IRS interest Rates Calculated?

Internal Revenue Code (“IRC”) §6621 establishes the IRS interest rates on overpayments and underpayments of tax. Let’s deal with the overpayment rates first. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.

Furthermore, under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Again, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. Additionally, the readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

Pursuant to the IRC §6621(b)(1), the Fourth Quarter 2024 IRS interest rates were computed based on federal short-term rates in January of 2024. 

Why Are the IRS interest Rates Important?

It is important to note that the Fourth Quarter 2024 IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. First, these rates will determine the interest a taxpayer will get on any IRS refunds.

Second, the rates will also be used to establish the interest to be added to any additional US tax liability on amended or audited tax returns. This also applies to the tax returns that were amended pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Finally, the Fourth Quarter 2024 IRS interest rates will be used to calculate PFIC interest on any relevant §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.

Given the importance of the IRS interest rates, we at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates, including the Fourth Quarter 2024 IRS interest rates.

Second Quarter 2024 IRS Interest Rates on Overpayment & Underpayment of Tax

/in , /by

On February 21, 2024, the IRS announced that the Second Quarter 2024 IRS interest rates on overpayment and underpayment of tax will remain the same as in the First Quarter of 2024.

This means that, the Second Quarter 2024 IRS interest rates will be as follows:

  • eight (8) percent for overpayments (seven (7) percent in the case of a corporation);
  • eight (8) percent for underpayments;
  • ten (10) percent for large corporate underpayments; and
  • five and a half (5.5) of a percent for the portion of a corporate overpayment exceeding $10,000.

Internal Revenue Code (“IRC”) §6621 establishes the IRS interest rates on overpayments and underpayments of tax. Under §6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points for individuals and 2 percentage points in cases of a corporation. There is an exception to this rule: with respect to a corporate overpayment of tax exceeding $10,000 for a taxable period of time, the rate is the sum of the federal short-term rate plus one-half of a percentage point.

Under §6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Again, there is an exception for a large corporate underpayment: in such cases, §6621(c) requires the underpayment rate to be the sum of the relevant federal short-term rate plus 5 percentage points. The readers should see §6621(c) and §301.6621-3 of the Regulations on Procedure and Administration for the definition of a large corporate underpayment and for the rules for determining the applicable date.

Pursuant to the IRC §6621(b)(1), the Second Quarter 2024 IRS interest rates were computed based on federal short-term rates in January of 2024. 

It is important to note that the Second Quarter 2024 IRS interest rates are relevant for a great variety of purposes. Let’s highlight three of its most important uses. Second, these rates will determine the interest a taxpayer will get on any IRS refunds.

Second ,the rates will also be used to establish the interest to be added to any additional US tax liability on amended or audited tax returns. This also applies to the tax returns that were amended pursuant to Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures.

Finally, the Second Quarter 2024 IRS interest rates will be used to calculate PFIC interest on any relevant §1291 PFIC tax. This PFIC interest will be reported on the relevant Form 8621 and ultimately Form 1040.

We at Sherayzen Law Office constantly deal with the IRS interest rates on overpayments and underpayments of tax. This is why we closely follow any changes in these IRS interest rates, including the Second Quarter 2024 IRS interest rates.

2022 Fourth Quarter IRS Interest Rates (Underpayment & Overpayment)

/in , /by

On August 15, 2022, the IRS announced that the 2022 Fourth Quarter IRS interest rates will again increase for both underpayment and overpayment cases. This increase closely follows the Federal Reserve’s recent increases in interest rates.

This means that, the 2022 Fourth Quarter IRS interest rates will be as follows:

Six (6) percent for overpayments (five (5) percent in the case of a corporation);
Six (6) percent for underpayments;
eight (8) percent for large corporate underpayments; and
three and one-half (3.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the interest rates are determined on a quarterly basis. This means that the next change in the IRS underpayment and overpayment interest rates may occur only for the 1st Quarter of 2023.

The the 2022 Fourth Quarter IRS interest rates are important for many reasons. These are the rates that the IRS uses to determine how much interest a taxpayer needs to pay on an additional tax liability that arose as a result of an IRS audit or an amendment of his US tax return. The IRS also utilizes these rates with respect to the calculation of PFIC interest on Section 1291 tax.

As an international tax law firm, Sherayzen Law Office keeps track of the IRS underpayment interest rates on a regular basis. We often amend our client’s tax returns as part of an offshore voluntary disclosure process. For example, both Streamlined Domestic Offshore Procedures and Streamlined Foreign Offshore Procedures require that a taxpayer amends his prior US tax returns, determines the additional tax liability and calculates the interest on this liability.

Moreover, we very often have to do PFIC calculations for our clients under the default IRC Section 1291 methodology. This calculation requires the usage of the IRS underpayment interest rates in order to determine the amount of PFIC interest on the IRC Section 1291 tax.

Finally, it is important to point out that the IRS will use the 2022 Fourth Quarter IRS interest rates to determine the amount of interest that needs to be paid to a taxpayer who is due a tax refund as a result of an IRS audit or amendment of the taxpayer’s US tax return. Surprisingly, we sometimes see this scenario arise in the context of offshore voluntary disclosures.

Sherayzen Law Office continues to track any changes the IRS makes to its overpayment and underpayment interest rates.